UPDATE 2-SL Green maintains forecast for 2009

* Maintains 2009 FFO outlook of $4.35-$4.50/shr

* Says Manhattan office mkt could hit bottom in 2010

* SL Green shares up 3.2 percent (Adds plans to use servicing arm to locate distressed deals, updates stock price)

By Ilaina Jonas

NEW YORK, July 28 (Reuters) - Manhattan office landlord SL Green Realty Corp (SLG.N) reaffirmed its outlook for the year on Tuesday, and its chief executive said the market is showing signs that it could bottom next year.

"We're not there yet, but we're headed in the right direction," CEO Marc Holliday said in a conference call with analysts.

The company's relatively bright outlook and its outline of plans to take advantage of distress in the market helped SL Green shares end up 3.2 percent at $24.55 by the close of regular trading Tuesday on the New York Stock Exchange.

SL Green has a structured financing arm which provides loans to other owners and services loans. That business will allow the company to locate distressed loans and properties and invest in them for good returns.

"We are actively tracking quite a number of these developing situations, as loans hurtle toward maturity, and we intend on using a small and prudent portion of our balance sheet, to pursue the best of these opportunities, as we did this quarter," said Andrew Mathias, president and chief investment officer.

After the close of the market on Monday, SL Green reported second-quarter funds from operations in line with Wall Street's forecast. The company, which owns 24 million square feet of Midtown Manhattan office space and 7 million in the surrounding suburbs, said it held occupancy at a 96.2 percent rate. But that came at a cost, especially for tenant improvements, which averaged $53.68 per square foot in the quarter.

The Manhattan office market, which has seen vacancy rates rise past 12 percent and rents in some areas fall by half, will likely bottom out in 2010, Holliday said.

Meanwhile, SL Green's occupancy rate could fall to 95 percent by the end of 2009 and to 94 percent in 2010.

SL Green maintained its forecast for the year of funds from operations in the range of $4.35 to $4.50 per share. Analysts on average expect $4.55, according to Reuters Estimates.

The forecast includes Citigroup Inc's (C.N) plans to vacate 193,000 square feet at an SL Green property on 34th Street in the third quarter. (Reporting by Ilaina Jonas; Editing by Tim Dobbyn)